Rewards programs keep customers coming back

By Alexandra Cain

28 June 2011 — 2:07pm

Most of us have a card or two from a local café tucked into our wallet, with the promise of a free cup of coffee once we've bought 10 coffees. It's a great way to engender loyalty from your customer base, but it's not just coffee shops that can benefit from rewards programs.

An increasing number of small enterprises are using rewards programs to incentivise their customer base to remain loyal to their business, and many are becoming scientific about measuring how successful these programs are at keeping customers coming through the door.

A free coffee isn't the only way to promote customer loyalty.

Photo: Sahlan Hayes

Despina Zylstra, marketing manager of children's clothing brand OshKosh B'gosh has been running a rewards program since 2009 to leverage the strong relationships the business' staff have created with customers.

When the program was set up, the business had an extensive database, but didn't have the resources to maintain it.

Endless Rewards, the business that manages the rewards program, gives Zylstra comprehensive monthly reports on the number of program users and how much they spend. Zylstra also uses Endless Rewards to manage OshKosh's email marketing campaign.

Another business that uses Endless Rewards is women's clothing retailer Rodney Clark.

General manager Marina De Luca agrees with Zylstra that outsourcing the program makes sense for smaller enterprises. “We're a small business and we don't have the resources to maintain this sort of program in-house,” she says.

Both Zylstra and De Luca stress it's important to structure rewards programs so customers come back to make future purchases. In OshKosh's case, 5 per cent of every purchase is added to the card to spend on the customer's next purchase. The card can also be used as a gift card, which converts to a loyalty card once the initial money is spent.

Rodney Clark maintains a two-tier program.

A customer can become a gold member after spending $150 with the business and a platinum member at $750, either in one go or over a 12-month period. When a customer spends $10 in the store, up to $1 in rewards are added to the loyalty card to spend on a future purchase.

De Luca says she chose this approach instead of giving customers a discount on purchases because the program is about keeping customers loyal. "With a discount you don't create loyalty; it's all about keeping customers coming back”.

Neil Joseph, who runs Endless Rewards, says when it comes to putting together a rewards program “the most important thing is that the system must be simple for the customer and merchant to understand”. For example, it must be easily apparent how much customers need to spend to earn their rewards points or dollars.

Joseph says the program “also has to be cost-effective”. He says the design of the program will depend on the business' marketing budget and the amount of income they want the loyalty program to generate.

He says in a small business “it's not about competing with the big retailers and it's a mistake to have too many tiers and thresholds”.

To work out the right loyalty program benefits, Joseph says it's an idea to test different program options and also ask the customer what type of program benefits they want.

"It's about finding the offer that works best and realising that not everyone will respond to the same offer,” he says.

“You could have a formal card program or you could simply send out letters thanking customers for their business. It's about treating customers as VIPs and encouraging them to come back again and again.”

Joseph says it's important to recognise discounts don't always inspire customer loyalty: “companies that discount will only attract discount hunters as customers. A good rewards program is all about giving customers a reason to come back and a strong loyalty program is a good way to do that”.